To this presentation of Metsä Board's fourth quarter and full year results for 2018. My name is Mika Joukio, and I'm the CEO of Metsä Board. Together here with me, I have our CFO, Jussi Noponen, and our Head of Investor Relations, Katri Sundström. So let's start with the summary of the fourth quarter of 2018. Our paperboard delivery volumes were at a lower level than in the previous quarter, as we earlier estimated, and mainly due to the seasonal decline in December. The average selling prices for boxboard and white kraft liners rose slightly. Uncertainty in the global pulp market increased during the fourth quarter, which decreased market pulp deliveries and prices, particularly in China. In the Husum integrated mill in Sweden, we had an unexpected machinery breakdown at the pulp mill. This caused extra repair costs and losses in pulp and paperboard production.
In an integrated mill, disruptions at the pulp mill negatively affect also paperboard production. Due to the machinery breakdown and weakened pulp market, we had to take down our earlier given guidance for the fourth quarter operating result in mid-December. At Kaskinen BCTMP mill, we invested in a new baling line. The value of the investment was EUR 6 million, and it increased the mill's annual BCTMP capacity by 30,000 tons. During the fourth quarter, we also announced to increase our own sheeting capacity in Äänekoski mill. As already mentioned, our sales in the fourth quarter declined due to the lower delivery volumes of paperboard and market pulp. Naturally, this had an impact also on our operating result. The negative result impact from the machinery breakdown at the Husum pulp mill and weakened pulp market totaled approximately EUR 10 million.
The pulp price in China has an impact on Metsä Board's result, given that roughly half of Metsä Board's pulp surplus is sold to China. The fourth quarter operating result was supported by the sale of emission rights. Exchange rate fluctuations, including hedges, had a positive result impact of approximately EUR 7 million compared to the previous quarter. Let's take a closer look at paperboard deliveries. During the fourth quarter, lower delivery volumes were influenced by the seasonal decline in December and a slowdown in economic growth towards the end of the year. Our total volumes in the second half of the year were at a lower level compared to the first half. We believe that the strong demand in the beginning of the year increased customers' stocks and reduced orders during the second half of the year.
Going forward, we will continue our actions to improve the average price of folding boxboard by optimizing the sales mix. Then, to the price development of paperboard, which has been favorable to us in all our market areas during 2018. In white kraft liners, we increased prices twice in Europe and once in the Americas. In particular, the price level of uncoated kraft liners improved clearly during the year. In folding boxboard in Europe, we announced an increase of EUR 90 per ton at the end of 2017, of which roughly half was achieved. At the end of 2018, we announced an increase of EUR 80 per ton, of which slightly more than a third was achieved on average and effective mainly from the beginning of 2019.
With the exception of the increased uncertainty towards the end of the year, the pulp market was strong in 2018 and improved our profitability. In addition to our own market pulp sales, we gained profits from our associated company, Metsä Fibre's increased production and delivery volumes. We believe that in the long term, demand for long fiber pulp is supported by limited new capacity in the coming years, as well as restrictions on recycled paper imports in China. Our annual pulp balance, including the share from Metsä Fibre, is approximately 600,000 tons long in 2019. The majority of that long position is long fiber pulp, which is sold mostly in Europe and in China. Our total investments in 2018 amounted to 70 million EUR and were mainly related to maintenance. In November, we took into use our new baling line at Kaskinen BCTMP mill.
The value of the investment was approximately EUR 6 million, and it increased the mill's annual capacity by about 30,000 tons to 370,000 tons. This BCTMP is a key element when improving the properties of folding boxboard, for example, to make the board lighter. In addition to our own use, Kaskinen's high-yield pulp is sold to the market. At the end of the year, we also announced an investment in a new sheeting line at Äänekoski mill. The new line is expected to be in production in September 2019, and it increases the mill's annual sheeting capacity by 35,000 tons to 120,000 tons. The total value of the investment is approximately EUR 11 million, of which the majority will be allocated to 2019. In total, we estimate our 2019 investments to be EUR 75 million, out of which approximately EUR 5 million relates to the new IFRS leasing standard.
Production costs rose in 2018. The biggest change was in wood costs, as higher wood prices resulted in an over EUR 30 million cost increase compared to the previous year. The price increase was particularly steep in terms of wood imported into Sweden from the Baltic countries. Also, more expensive road transport costs in the U.S. burdened the result by roughly EUR 10 million. General cost inflation accelerated in 2018 but slowed down towards the end of the year. Our FX exposure grew during 2018, along with higher dollar prices of pulp and paperboard, increased paperboard deliveries to the U.S., and increased production in Sweden. The total impact from FX fluctuations, including hedges, had a negative effect of approximately EUR 53 million on our full year result compared to the previous year. In the fourth quarter, the impact was EUR 7 million positive compared to the previous quarter.
Then to our cash flows, which weakened during the fourth quarter. The main reasons for this were the higher CapEx and the changes in working capital. The operating efficiency of our mills was at a good level in 2018, and nearly all of the production lines set new annual production records. December, in particular, was a strong production month, which led to higher than normal year-end inventories. Again, it's good to remember that the share of our result generated for Metsä Fibre is a non-cash item. We expect to receive the dividend from Metsä Fibre in the first quarter this year. So our financial targets remained unchanged in 2018. In the medium term, we continue to allocate our capital to moderate growth, taking into account the prevailing market environment. Our decision-making is based on our profitability targets and aims to create the highest possible shareholder value.
Our annual growth in total paperboard deliveries in 2018 was a little less than targeted. Return on capital employed and the leverage ratio both met our targets. The board of directors proposes a distribution of EUR 0.29 per share for the year 2018. Out of this, EUR 0.10 will be paid as a dividend and EUR 0.19 as other distribution of equity. The total distribution corresponds to 51% of the net result. Before moving on to the near-term outlook and guidance, I want to highlight the long-term drivers and market trends: globalization, urbanization, sustainability, food safety, and growing e-commerce, which all increase the demand for Metsä Board's fresh fiber paperboards. Our products are recyclable. We use only renewable fresh fiber from sustainably managed northern forests. We have good control over our raw materials, which guarantees purity and safety in food contact uses.
Our paperboards offer a strong promotion and branding experience in e-commerce. As packaging increases, the materials used in packaging become more important. The key thing is to replace the non-renewable packaging materials. Consumers are more conscious, and brand owners seek alternative packaging solutions. Roughly a year ago, Metsä Board launched a new Eco-barrier paperboard mainly for food service use. The non-plastic special barrier treatment improves the crease resistance of the board and makes it an ecological and efficient packaging material. Just recently, our Eco-Barrier paperboard was given an industrial compostability certificate. This external certification helps brand owners to choose packaging materials that truly comply with the disposal requirements. We will continue our research and development work, keeping the focus on the further lightweighting of our paperboards and developing ecological and compostable barrier boards. Once again, we received much external recognition for our actions in sustainability.
Just after the year-end, we were highlighted as a global leader in corporate sustainability by CDP, a non-profit global environmental disclosure platform, by achieving a place on the CDP A List for both climate change and water security. This is now the fourth consecutive year that we have been included in the CDP Water A-list and the third consecutive year in the CDP Climate A-list. In addition, we were recognized as a world leader for supplier engagement on climate change, important recognitions of which I'm very, very proud. Then to the near-term outlook. We expect our first quarter paperboard deliveries to rise slightly compared to the fourth quarter of 2018. Also, the prices of folding boxboard in local currencies are expected to increase. Last autumn, we announced an EUR 80 per ton price increase in Europe, of which we achieved slightly more than a third on average.
Higher prices took effect for the most part from the beginning of 2019. Changes in FX, including the hedges, will have a positive effect on our first quarter operating result compared to the previous quarter. And we expect the pulp prices, on average, to be on a lower level in the first quarter compared to the fourth quarter last year. In March, there will be a planned maintenance shutdown at Metsä Fibre's bioproduct mill in Äänekoski. And finally, continuing uncertainty in the global economy, slowdown in China's economic growth, and reduction of inventory levels in the value chain will all generate uncertainty in Metsä Board's business operations. And based on these assumptions, we expect our operating result in the first quarter of 2019 to remain roughly at the same level as in the fourth quarter 2018.
To summarize, market trends, especially sustainability, support demand for ecological fresh fiber paperboards. Renewable packaging materials grow their importance, and brand owners constantly seek more sustainable packaging solutions. Metsä Board's paperboards meet this demand well. The pulp market is expected to remain uncertain in the near future. However, in the long term, we see that the global demand, especially for long fiber pulp, is supported by limited new capacity and growing need for pulp in China. Paperboard price development was favorable in all our market areas and segments in 2018. We succeeded well in our recent price negotiations, and therefore we have a good start for 2019. During the recent years, we have grown clearly above the average market growth level. In the medium term, we continue to allocate our capital to moderate growth, taking into account the prevailing market environment.
Our decision-making is based on our profitability targets and aims to create the highest possible shareholder value. We also want to continue competitive distributions to our shareholders and maintain our strong financial position. The board of directors proposes that distribution to shareholders from the financial year 2018 is EUR 0.29 per share. So this was the presentation of Metsä Board's results from year 2018, and we are now ready to answer your questions. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing Star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press Star 1 to ask a question. We will now take our first question from Antti Koskivuori, Danske Bank. Please go ahead, sir.
Yes, thank you and good afternoon.
I would have three questions. Firstly, on paperboard deliveries, which you guide to increase slightly from Q4, implying fairly low levels compared to the situation in Q1 last year, what is your understanding of the current inventory levels, which you imply be a bit high in Europe? Is this a short-lived issue, or should we expect the low paperboard deliveries to last longer than just Q1? That would be the first question, and secondly, about the folding boxboard price increases, which now you say that one-third of the announced EUR 80 per ton increase had gone through, this seems a bit lower number compared to the indication of EUR 40-EUR 50 per ton increase from the trade press. Do you have any ideas or thoughts why the difference between the two numbers? Thirdly, about the maintenance costs compared to Q1 and Q4.
Now you have Q1 Äänekoski. Just a reminder, what was the full impact in Q4 and how that should evolve going into Q1? Thank you.
Okay, starting from, so Mika Joukio here, starting from deliveries, when we mentioned that the volumes will be slightly higher Q1, our estimation is that they are slightly higher in Q1 compared to Q4. Still, the first weeks of this year were a bit low as far as the order inflows are concerned after Christmas. But then now the order inflows are pretty much normalized, and based on that, a little bit slow start in January, then expectation is that there will be slightly higher now in Q1. So that is the background. Then the prices, you mentioned this year, so as I mentioned, we were able to get this roughly EUR 30 per ton on average.
And last year in January, it was a little bit more. I mean, market situation was obviously a little bit different at the end of last year than at the end of 2017. And based on that, then the increases were different this year comparing than 2018. And then maintenance, so this first quarter normally is, how would I say, it's light concerning the maintenance actions. And this year, roughly the first quarter is, I would say, or the impact comparing to the other quarters is EUR 6 million roughly. So comparing second, third, and fourth quarter, then the kind of tailwind for Q1 is roughly EUR 6 million. And comparing Q4 and Q1, yeah, or comparing Q4 and Q1, so then the Q1, the costs are or the impact is lower than in Q4. I don't have any number for you, but it's lower in Q1.
Okay, thank you very much.
We will now take our next question from Mikael Doepel, UBS. Hi, we'll take our next question from Christian Kopfer, Nordea. Please go ahead.
Yep, thanks operator, and thanks for taking my questions. Just two short questions from my side. Firstly, on the pulp delivery side, you said that, if I remember correctly, around 50% of your deliveries went to China and 50% to Europe. Have you redirected any of these Chinese shipments to Europe when you had a little bit more difficulties to deliver to Chinese customers?
Yeah, Mika Joukio here, not really. So the share is pretty much similar as it has been.
Are you looking to sustain that share also going forward, or do you see opportunities to take market shares in Europe?
No plans to change that.
Okay. Then finally for me, on the pulp wood cost, we have seen some indications of lower prices.
But you haven't seen anything, or is it just overall stable into Q1?
No, it's, yeah, Mika Joukio here again, so it's quite stable. So last year we had this increase and the prices went up, but now the situation is more stable.
Okay, thank you very much.
We will now take our next question from Mikael Doepel. Please go ahead.
Thank you. Good afternoon, everybody. A couple of questions starting off with Metsä Fibre and the share of associated income that you get from that, which is quite substantial. So a couple of questions regarding that. First of all, the price decline that we saw in Q4 in China, how much of that was visible in your average prices in Q4, and how much of a sequential decline do you expect going into Q1 this year?
Another question on Metsä Fibre will be that how much incremental volumes should we expect to see from Äänekoski 2019 compared to 2018? Let's start there.
The Metsä Fibre, if I understood right, your question was so how much we were able to see this pulp price difference or change to our prices, and of course we didn't see anything. Our prices rose slightly from Q3 in Q4. Coming back to the pulp prices in China, so when they were at their highest, they were at the level of roughly $900 per ton, and then the lowest level was reached in January, and that was roughly $700 per ton. Now the first increases have been announced. Of course now there is a Chinese New Year, and it remains to be seen what happens after that.
In early March, we will know much more concerning the pulp prices. And coming back to the Äänekoski bioproduct mill production, so obviously this year the volumes will be higher because it's the second full year in production. I don't have the clear number for you, but we are running pretty close to the nominal capacity. And having said that, then the volumes will be higher this year than last year.
Okay, but just to be clear on the pricing, so you're selling volumes to China, and you say in your report that about 50% of those go to China. We saw pretty steep price declines there. Are you saying that you did not see any of those declines in Q4 numbers? And if that's the case, you should see quite a substantial drop going into Q1. Is that the way to interpret it?
Yeah, of course.
Of course, we saw the drop in the pulp prices, not paperboard prices, but pulp prices. But then also the volumes were quite low in Q4 when the prices went down because there was this uncertainty. And now, as we have said, the pulp prices in Q1 will be on the average lower than in Q4 because they reached the bottom, so to say, in January.
Okay. All right. And moving on to folding boxboard and the U.S. market and your growth strategy there. Any comments on that, how things are developing in the U.S.? Are you getting new customers? And overall, I guess, what are your expectations for that business for 2019?
So since 2014, we have had very strong growth in that market. And also last year we grew nicely.
This year our target is to continue to grow, but a little bit more modest, so to say. We put a lot of pressure now and effort to our sales mix. In other words, to increase the average price by improving the sales mix. Having said that, we continue to grow this year, but the growth target is not to grow as much as we grew last year.
Okay. Do you see any chance for the local prices, SBS there, which are basically the grade you're competing against to move up in the U.S. this year?
Yeah, the market situation in the U.S. is clearly better than here in Europe. There have been price increases also. Order inflow is good and the market is strong.
Yeah. Okay. Good.
And then just a final, maybe a bit of a technical one, but the revenues split for 2018, how much of your group revenues came from America? Do you have that number already available?
Let me do you have that number? Maybe you can call Katri or Jussi after this, then we have the number for you.
Sure. Yeah. Sure. Sure. Will do. All right. Thanks a lot.
Again, press Star 1 to ask a question. We will now take our next question from Linus Larsson. Please go ahead.
Thank you very much. Coming back to the price increases that you've been able to push through in folding boxboard at the start of 2019, I wonder if you could be a bit clearer, please, on what tonnage that applies to.
I know that you shipped some 1.2 million tons of folding boxboard in the past 12 months, but I also know that you sell to different categories of customers and different geographies as well. So to what tonnage does this price increase apply?
Yeah, so on average, our volumes to EMEA area. We were able to increase the volumes by this EUR 30 per ton. And roughly 65%-70% of our sales is going to the EMEA market. But then, of course, we also have these brand-owner businesses. So to give you a rough figure, it is difficult at this point, but it is maybe roughly half of the business or a little bit more.
Okay, so half of the EMEA business.
No, no, no. So EMEA folding boxboard business is like 700,000-800,000 tons.
And for that volume, we were able to, on the average, get this EUR 30. Did you get it?
Okay. Thank you for that. And then also another clarification maybe on the maintenance bridge when we look at Q1 versus Q4 on maintenance costs. And if we for a second disregard what's going on in the associate business, Metsä Fibre, if you compare the impact from Husum in the fourth quarter and whatever other maintenance and production disturbances that you single out and compare with the first quarter, could you please give that bridge excluding Metsä Fibre?
Okay. I mean, without Metsä Fibre, so practically all the Metsä Board mills are running practically full then Q1, I mean, without any maintenance shutdowns. So it's pretty much close to this EUR 10 million, but then you need to take this Metsä Fibre into account.
Yes. Okay.
But when you say the EUR 10 million, that's including the extra cost that you had for the machinery breakdown at Husum in the fourth quarter?
No, no, no.
Okay. That comes on top then. Another few millions on top of the 10 then.
Yep.
Right?
Yep.
We will take our. Oh, sorry. Please go ahead.
Yeah, just one final question. Could you please say also the Metsä Fibre dividend that you expect for the spring of 2019, how much is that?
Yes, it will be slightly over EUR 60 million.
Okay. Thank you very much.
We will take our next question from Martin Melbye of ABG Oslo. Please go ahead, sir.
Thank you. You've been quite specific earlier on the EBITDA improvement from the different projects you were running, like Husum, Kaskinen, Äänekoski, maybe also Kaskinen.
What is remaining here now for 2019 and 2020 of those projects in terms of EBITDA, you would say?
I don't have you a clear, I mean, EBITDA improvement, but still, of course, we have improvement potential in Husum, as we have mentioned earlier. Then we have improvement potential in Kaskinen because now we utilize the new investment. And then at the end of the year, we will have a small positive impact also from Äänekoski. So there are several areas where we are able to see the improvement, but I don't have a clear number for you at this point. Maybe roughly EUR 20 million-EUR 30 million all in all.
All in all for all the thing? That's Husum, Äänekoski, Kaskinen.
Maybe a little bit more than EUR 20 million-EUR 30 million. Maybe Husum alone is roughly that, and then some small improvements then from Kaskinen.
Okay.
And then what do you see beyond these projects that you've been doing successfully the last three years? What is the next, so to say?
At this point, no news. So of course, we are planning different options as always, but at the moment, we don't have anything to tell.
Okay. Excellent. Thank you.
There are no further questions at this time. I would like to turn the call back over to you for any additional or closing remarks.
Okay, everybody. Thank you very much for good questions, and I wish you a good continuation of the day. Thank you.